The Golden Touch
Sydney Morning Herald
Saturday February 15, 2003
Is any executive worth $33 million? Shareholders don't think so. But Chris Cuffe could have made many times that if he'd played his cards right, report Brian Robins and Cosima Marriner.
IN THE beginning there were just the two of them, Greg Perry and Chris Cuffe. Perry picked the stocks and Cuffe ran the office. In the process, they built Colonial First State into one of the top three in the investment industry, boosting funds under management from $100 million to more than $50 billion.
Working out of the then State Bank of NSW, they built a behemoth of a funds management machine. It powered the growth at Colonial, which was eventually sold to the Commonwealth Bank for $8 billion in early 2000, reaping Colonial shareholders a massive windfall.
Perry quit last year, opting for time out. Soon after, Cuffe took six months' leave to get married before he quit at the end of the year, pocketing a breathtaking $32.5 million on the way through and reigniting the debate about corporate greed when details of the payout surfaced this week.
CEOs worth tens of millions of dollars have already joined the elite of the sporting field. Now senior management is muscling in. Huge annual bonuses for traders in foreign exchange, bonds and shares are the norm, even if they rarely hit the headlines as they pocket their slice of the profits.
But at $32.5 million, the payout for ``Chris who?" has eclipsed that of departing chief executives responsible for thousands of employees and responsible to thousands of shareholders.
``It just beggars belief that one person's contribution is so much more valuable than that of others," said Dr Simon Longstaff of the St James Ethics Centre. ``In recent years, there has been a really obscene process by which senior employees have been judged by their employer to be worth hundreds of thousands of times more valuable than others. How can you arrive at such a difference?"
The size of Cuffe's payout may prove the high-water mark for corporate largesse in the boom of the 1990s, yet it comes as Australia is shifting towards American-sized remuneration packages for executives who do create massive investor wealth. The downside is the eye-popping level of payments to senior executives sent packing for not making the grade, especially in the world of financial services, where competition for top-flight executives is keen and bonuses linked to success are the norm.
Australia is operating in a global talent market and the Oz drawl is not uncommon in the financial services sector around the world.
NOT SURPRISINGLY, the Cuffe payout was a free kick for politicians of all stripes who condemned it as excessive. ``I find it impossible to believe that any executive is worth $32 million," said the federal Treasurer, Peter Costello, absolving the Government of any responsibility and flicking the issue to the board of the Commonwealth Bank.
``I would say to the directors responsible that they better have a very good explanation for their shareholders," said Costello. ``And I'd say to those shareholders that the remedy for this lies very directly in their own hands."
For all the rhetoric, reining in executive payments is at odds with Liberal Party philosophy that government ought not interfere in the market. The Employment and Workplace Relations Minister, Tony Abbott, admitted: ``We don't think the Government should be regularly interfering in things which are quite regulated by others."
Earlier this week the Government blocked Labor's attempt to amend the Corporations Act to allow shareholders to vote on executive remuneration. Realistically, few believe that introducing formal controls to limit payouts is the way to go. ``Rules will only create incentives for people to find their way around them," said Simon Longstaff.
The only solution may be public pressure on directors who condone payouts of this order for senior executives who are simply doing their jobs. ``There is a failure of moral courage of some boards," said Longstaff. ``They will agree among themselves that they shouldn't do it, but they still move with the market."
The issue is not limited to huge payouts when executives quit or are pushed out the door, but also encompasses free ``options" to senior executives to gain shares in the companies they manage. It is claimed that giving options to executives ``aligns" their interests more closely with those of their shareholders.
It seems to be lost that chief executives who enjoy pay packets that put them in the top few per cent of the workforce could afford to buy shares in their own company, if they so chose.
The Australian Shareholders Association, a lobby group, plans to push for public companies to disclose details of the ``break fee" that is likely to be paid if a company loses its chief executive, though any such change will take time. ``The idea that anyone can walk away with a cheque of that amount is mindboggling," said the association spokesman, Rex Burgess.
Nor will the issue of huge payouts go away in a hurry.
Paul Batchelor, the former chief executive of the insurer AMP, is still negotiating a payout rumoured to be as much as $20 million for just three years in the driving seat. It is all the more galling that the Batchelor payout won't be far behind the multi-million-dollar farewell to George Trumbull, the hard-nosed American who bulldozed his way through the transition of AMP from a sleepy mutual to a public company.
With AMP's share price languishing around $8, barely a third of the figure it commanded when it first went public, there is likely to be little patience with the board if it signs off on another big payout.
The massive sums paid to Cuffe and Perry come at the end of the bull sharemarket that ran through the 1990s. Along with other funds managers, they benefited from the rising tide of funds flowing into superannuation schemes because of changes to the tax system.
Fund managers receive fees for the funds under management, so that as the kitty has grown, so has their take, even if investment returns have fallen over the past few years.
``The only mistake that Cuffe made was not to have taken a slice of the equity in the business at the outset," said one fund manager. If Cuffe had done so, he could have walked away at the time of the CBA takeover with probably much, much more than the $32.5 million payout and avoided the firestorm of criticism.
And the likes of Cuffe and Perry are not alone, even if they are commanding the headlines and dominating talkback radio debate on the issue.
Take Robert Maple-Brown. Unknown outside the rarefied world of fund management, he is worth tens of millions of dollars thanks to the extraordinary success of his firm, Maple-Brown Abbott, in which he is the largest shareholder.
His firm has more than $16 billion in funds under management and generated a profit of $30 million last financial year, of which his share is about $20 million.
If he were to sell his firm, he would walk away with close to 10 times what Cuffe ``earned" for his role in building Colonial First State via his $32.5 million payout.
And there are any number of other fund managers out there who are also enjoying breathtaking salaries as they garner their share of rising superannuation provisions. Boutique fund managers are the growth sector of the financial services industry and old-time stockbrokers increasingly face retrenchment.
© 2003 Sydney Morning Herald